A new circular has approved the development of apartments with a minimum area of 25m2 and limits the number of apartments below 45 m2 in a commercial housing project.
With the rapid urbanization in provinces and cities in Vietnam, the demand for small, affordable housing is increasing. According to Savills statistics, the proportion of single households in urban areas has increased from 4.6% in 1989 to 10.1% in 2019. Apartments under 45 m2 have seen demand from newly married couples, recent graduates, people who have moved to urban areas and investors with moderate budgets who buy for leasing purposes. After the Circular becomes effective on July 1 2020, investors can diversify their assets within the allowable limits. The product line is expected to appear in more segments (low-end, intermediate and even high-end), giving buyers a more extensive range of choice.
There is a high amount of demand for small and affordable housing in Vietnam. For people who do not have abundant financial resources, apartments with a price of 500 million to over 1 billion VND are a suitable product. According to Ms Do Thi Thu Hang, Head of Research, Savills Vietnam: ''The demand is real and relatively high in the small-sized housing segment. The product line is not only affordable but also meets transportation needs and offers easy accessibility to surrounding social infrastructure and facilities”.
This small product type may challenge developers; therefore, it is important that the projects are planned and executed well. It should also be noted that small-sized housing, depending on product quality requirements, will have different prices per m2 than regular sized properties.
Land accounts for 30% of the total value of housing products; the high prices in Hanoi and Ho Chi Minh City pose a significant challenge. Real estate developers still need to provide basic internal facilities to ensure residents’ quality of life. In addition, to sell these type of products the investor must also choose a strategic location with developed infrastructure and public facilities.
When it comes to the construction and sale of apartments sized 25m2 and above, technical and social infrastructure are crucial factors to be carefully considered by both investors and buyers. Technical infrastructure includes electric, water, waste treatment and fire alarm systems. Social infrastructure includes schools, hospitals and traffic systems. These two factors are prerequisite conditions but may have some potential risks. Mr. Su Ngoc Khuong, Senior Director of Investment said: “If there is methodical and logical investment on a large scale, these small sized projects will flourish”.
Mr. Khuong believes that the small housing segment (from 25m2) is a potential product for international developers and investors. “Residential property has consistently been the most attractive form of property investment due to the fast capital turnover and high profit margin. I hope that, as legal issues become more transparent, the small apartment segment will attract more investors and foreign investment, as I believe the demand for this segment is real and relatively high.”